Pence Wealth Management Financial Markets Report

March 27, 2014

US FINANCIAL MARKET

U.S. Stocks Fluctuate at the Open as Energy Gains Offset Drop in Tech.

Losses this month have been steepest in U.S. stocks that led the five-year-old bull market, with consumer discretionary companies falling 3.9 percent through yesterday after quadrupling since March 2009.

The Nasdaq Biotechnology Index, up 304 percent in the last five years, has fallen 11 percent since the end of February, while the Russell 2000 gauge of smaller companies has slipped 2.3 percent after rallying more than 230 percent.

Bank of America agreed to pay $9.3 billion to settle claims that it sold Fannie Mae and Freddie Mac faulty mortgage bonds. The bank said it had now resolved around 88 percent of its total exposure to securities at issue in the mortgage bond litigation it has faced. It was the 10th settlement that the FHFA has reached in litigation that began in 2011.

Standard & Poor’s asked a federal judge to split up the U.S. government’s $5 billion civil fraud lawsuit accusing it of lying about its credit ratings. The government accused S&P of hurting banks and credit unions by inflating ratings to win more fees from issuers, and being too slow to downgrade debt backed by souring mortgage-backed securities.

Dish CEO contacts DirecTV head over possible tie-up. Any talks between the two major U.S. satellite television operators would come as the two top cable TV providers, Comcast and Time Warner Cable agreed to merge.

Japan’s ANA Orders $16.6 Billion in Airliners from Boeing and Airbus. ANA agreed to buy 40 aircraft from Boeing and 30 planes from Airbus. ANA had 198 Boeing jets, or 84 percent of its fleet of 236 planes, as of March 24, compared with just 16 Airbus A320s.

The orders are significant for Boeing after losing a $9.5 billion deal by Japan Airlines to Airbus last year. ANA agreed to buy 20 777-9X, 14 787-9 and six 777-300ER planes, to be delivered between fiscal 2017 and 2027.

Boeing sees Latin American market share of at least 50 percent. Boeing expects 2,900 jetliners worth $300 billion over the next 20 years with Boeing’s share of that would be “minimum fifty-fifty.”

In recent years, Boeing has lost market share in the region. Airbus said on Tuesday its market share was 61 percent of aircraft sold and that it believes it can drive that up to 65 percent.

US ECONOMY & POLITICS

The U.S. economy grew more rapidly in the fourth quarter than previously estimated as consumer spending climbed by the most in three years. GDP expanded at a 2.6 percent annual rate, up from the 2.4 percent previously estimated. The median forecast of 79 economists surveyed by Bloomberg called for a 2.7 percent increase.

Today’s estimate is the third and final for the quarter. For all of 2013, the economy expanded 1.9 percent after a 2.8 percent increase in the prior year.

Abnormally cold weather probably slowed fourth-quarter growth by 0.4 points and is expected to shave a full percentage point from first-quarter GDP, according to an analysis from Macroeconomic Advisers in St. Louis.

The world’s largest economy will grow at a 1.8 percent pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg.

Consumer spending, which accounts for more than two thirds of U.S. economic activity, grew at a brisk 3.3 percent rate, reflecting strong growth in services. Consumer spending was previously reported to have increased at a 2.6 percent rate.

Corporate investment in equipment climbed at a 10.9 percent annualized pace, the most in more than two years.

Today’s report for the first time included a measure of corporate profits. Before-tax earnings rose 2.2 percent after climbing 1.9 percent in the prior period. Profits were up 6.2 percent from the end of 2012.

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 311,000, the lowest level since November. Economists had expected first-time applications to rise to 325,000.

A growing number of Americans quitting the labor force are likely gone for good. According to economists who have analyzed Labor Department data, 6.6 million people exited the workforce from 2010 and 2013. About 61 percent of these dropouts were retirees, more than double the previous three years’ share.

People dropping out because of disability accounted for 28 percent, also up significantly from 2007-2010. Of those remaining, 7 percent were heading to school, while the other 4 percent left for other reasons.

Pending home sales fall to lowest level since October 2011. NAR’s pending home sales index fell 0.8 percent to 93.9 in February.

EUROPE & WORLD

Ukraine reached a preliminary deal with the IMF to unlock $27 billion of international support to avert default and limit economic damage from a four-month political crisis.

China signed a new 10-year accord on Wednesday allowing Airbus to assemble A320 planes on its soil until 2025 and unblocked orders for larger jets worth more than $6 billion. Airbus opened its first non-European aircraft assembly plant in the port city of Tianjin in 2009 and has been negotiating for months to extend the local production venture beyond 2016. For the time being, production will remain at 4 a month.

Russia has revived plans to develop its own card payment system to cut its dependence on Visa and MasterCard after U.S. sanctions led to disruptions in their services, its finance minister said on Wednesday. Visa and MasterCard last week stopped providing services for payment transactions for clients at Bank Rossiya.

H&M Profit Growth Is Held Back by Cost of Online Investment. H&M, Europe’s second-biggest clothing retailer after Spain’s Zara, said the cost of investing in online expansion weighed on first-quarter earnings as it seeks to keep up with the pace of change in the industry.

TODAY in HISTORY

President Andrew Johnson vetoed a civil rights bill which later became the 14th amendment (1866)

The first long-distance telephone call was made, between Boston and New York (1884)

A 9.2 magnitude earthquake hit 80 miles east of Anchorage, Alaska, killing 117 and producing a 50-foot tsunami that traveled over 8,000 miles (1964)

PanAmerican and KLM Boeing 747s collided on a runway in Santa Cruz de Tenerife, Canary Islands. The 542 people killed is the highest ever for an aviation disaster (1977)

Sources: Reuters, Bloomberg.

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S & P 500, are unmanaged and may not be invested into directly.